(Bloomberg) — There’s going to be an oil-supply crunch in the summer of 2022. At least that’s the latest view from the analysts at OPEC, and it stands in stark contrast to the other major forecasting agencies.
The International Energy Agency, the U.S. Energy Information Administration and the Organization of Petroleum Exporting Countries all increased their assessments of global oil demand growth next year. But while the increases made by the IEA and EIA were modest, the oil producer group’s revision was anything but. (See chart below.)
OPEC’s analysts now see global oil demand increasing by 4.15 million barrels a day in 2022, compared to the level expected for this year, an upward revision of 860,000 barrels a day from what they forecast a month ago. That compares with growth of 3.24 million barrels a day seen by the IEA and 3.64 million barrels by the EIA, up just fractionally from their August reports.
The upward revision isn’t uniform across the year, with the biggest increase — 1.33 million barrels a day — seen in the second quarter and the smallest — 310,000 barrels a day — in the fourth.
The stronger demand outlook is driven by more optimistic views on consumption levels in China, the rest of Asia and Europe. Together, those regions account for 640,000 barrels a day, or about two-thirds, of the total revision. Positive economic developments alongside containment of Covid-19 are seen boosting European demand, while “solid economic growth” and a healthy outlook for transportation fuels are expected to power the increases in Asia, according to OPEC’s report.
The evolving demand forecasts have important implications for global oil balances next year, leading to big revisions from the August forecasts of the amount of crude needed from the members of OPEC in order to balance supply and demand. (See chart below.)
There have been no corresponding upward revisions to oil production forecasts to offset the higher demand numbers. Indeed, those have moved in the opposite direction in the short term. OPEC cut its assessment of production from countries outside the group by 520,000 barrels a day in the current quarter, with half of the reduction resulting from the impact of Hurricane Ida on operations in the U.S. Gulf of Mexico.
While it doesn’t see that impact extending beyond September, it has made smaller downward revisions to production in Europe and Asia all the way through the end of 2022, boosting its assessment of the world’s need for its members’ crude by a further 150,000 barrels a day next year to fill the gap.
Comparing the volumes of OPEC crude needed against the group’s most recent production level (for August), OPEC’s bullishness stands out, particularly in the second half of next year.
The producer group is scheduled to add 250,000 barrels a day to production each month under the terms of its current output deal with a group of allies. The forecasts suggest that it may have to take a pause from those increases in the first quarter of 2022, perhaps even reversing them briefly.
How long that period of weakness least depends on whose forecasts you believe. The IEA, and to a lesser extent the EIA, see a prolonged period during which the producers will again need to exercise output restraint. The IEA pegs the world’s need for OPEC crude in the second half of 2022 at just 570,000 barrels a day above last month’s production level.
But if you believe OPEC’s own analysts, the group’s crude production will need to increase by 3.5 million barrels a day by the third quarter of next year. That would potentially allow it to let inventories build again in the first half of 2022, before they are drawn down again in the second half.
But there’s one thing that all three agencies agree on. The first half of 2022 still looks like it’s going to test the resolve of OPEC and their allies to maintain the discipline they have shown since they first responded to the pandemic back in May 2020.
©2021 Bloomberg L.P.